Here’s Why You Should Pick Broadcom Stock Now

Broadcom Inc. (NASDAQ: AVGO) stock is up 6% in the last five days following two key developments: the broader market recovery after President Trump paused reciprocal tariffs for 90 days, and the company’s announcement of a $10 billion share repurchase program. Despite this rally, AVGO remains down over 20% this year. Such volatility isn’t unprecedented for the company—during the 2022 inflation shock, AVGO stock decreased by 36%, and it fell by 48% during the COVID-19 market downturn in 2020.

Solid Fundamentals Support Long-Term Outlook

Broadcom’s core financial metrics demonstrate its underlying strength:

• Robust Revenue Growth: 24.7% average growth rate over the last 3 years
• Impressive Profitability: $19 billion operating income in the last four quarters, with a 34.3% operating margin
• Strong Cash Generation: $21 billion operating cash flow during this period, representing 39.0% of sales
• Sound Financial Position: $67 billion debt compared to $854 billion market capitalization, with a debt-to-equity ratio of 8.2%
• Healthy Liquidity: $9.3 billion in cash and cash equivalents

AI-Driven Growth

• Broadcom’s exceptional performance is primarily driven by its AI products and VMware acquisition (2023).
• In fiscal 2024, the company’s AI revenue reached $12.2 billion, representing a remarkable 220% year-over-year growth.
• This surge stems from strong demand for Broadcom’s custom AI accelerators (XPUs) and Ethernet products.
• The company has strategically positioned itself to capitalize on the generative AI boom through its comprehensive portfolio of networking and storage solutions, cybersecurity offerings, and semiconductor products.

Valuation and Growth Prospects

• At 15 times trailing revenues, Broadcom’s current valuation isn’t cheap but remains consistent with its average over the last two years.
• This premium pricing appears justified given the company’s significant opportunities in the rapidly expanding AI sector and impressive top-line growth rate of nearly 25%.

Risks to Consider

• Broadcom remains vulnerable to macroeconomic conditions. While semiconductor goods are currently exempt from specific tariffs, potential trade war escalation could affect the entire supply chain.
• Higher tariffs on Chinese products could increase costs throughout the economy, potentially slowing economic growth and reducing investment in areas like AI—a key driver for Broadcom’s future performance.

For long-term investors, the current pullback in AVGO stock may represent an opportunity, given the company’s strong fundamentals and positioning in the AI market. However, those concerned about near-term volatility should consider appropriate strategies, such as the Trefis High Quality (HQ) Portfolio strategy, with a collection of 30 stocks, which has a track record of comfortably outperforming the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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